Second wave of Australian LNG at risk
The second wave of four Australian Liquefied Natural Gas projects, worth $100b, is at risk.
Well publicised cost overruns, at the US$52 billion Gorgon LNG venture for example, have scared the industry.
Australian-based LNG projects have an approximate break-even of US$11-12 per million BTU (see graph below).
In addition, the US decided last week to give the go-ahead for a large liquefied natural gas export facility in the Gulf of Mexico.
According to Professor Geoffrey Garrett, Dean of the Australian School of Business at the University of NSW, the US will now become a major LNG exporter, targeting the two top markets for Australian gas: Japan and South Korea.
But Garrett claims that the current cost advantage of US gas production disappears when “the full costs of liquefaction, shipping the LNG through the Panama Canal and across the Pacific, and then regasification, are taken into account”.
While the effective cost of putting US LNG into Asia would be about US$12-$13 per million BTU, the emergence of the US as a significant LNG exporter provides additional competition for Australia.
It has just been reported that Korea Gas did not receive approval from the South Korean Government to take $30b of gas from Gorgon (over 20 years).
Meanwhile, Kogas would not be taking $29b worth of gas from Wheatstone, however Roy Krzywosinski, the local Chevron Managing Director, claims this lost volume has since been replaced.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
